Procter & Gamble Home Products Private Limited Vs DCIT (ITAT Mumbai)
Main allegation of the revenue is that of non-furnishing of audited AE and non AE segmental as well as documents regarding choice of foreign entity as tested party. We also noted that any other reason for levy of penalty is for non-furnishing of audited manufacturing and distribution of segmental accounts. Further, reason for levy of penalty is non-furnishing of documents on applicability of TNMM as per Rule 10D. We noted from the arguments of the learned Counsel for the assessee as noted above in detail and the details submission made by the assessee is to support its transfer pricing study report and international transaction entered into with its AE that the assessee has completely complied with Rule 10D(i) of the Rules. We noted that from the letter issued by revenue dated 07.09.2015 i.e. notice under section 92CA(2) read with section 92D(3) of the Act requiring information to be furnished in connection with the TP proceedings that a general notice is issued by the Assessing Officer. We noted that this issue has been considered by Hon’ble Delhi High Court in the case of CIT vs. Leory Somer & Controls (India) (P) Ltd. (2014) 360 ITR 532 (Del), wherein it is held that when there is a general notice and no specific information of document which is required to be submitted by the assessee under section 92D(3) of the Act, is asked for, the penalty levied under section 271G cannot be sustained. We noted that the assessee in the present case has made substantive compliance of the provisions of rule 10D, it is sufficient. The Legislature was conscious of this fact and, therefore, had specifically stipulated in section 92D(3) that the Assessing Officer or the Commissioner (Appeals) may require a person to furnish any information or document in respect thereof and on failure of the said person to furnish the documentation within the specified time, penalty under section 271G can be imposed. Thus, for imposing penalty the Revenue must first mention the document and information, which was required to be furnished but was not furnished by the assessee within the specified time. The documentation or information should be one specified in rule 10D, which has been formulated in terms of section 92D(1).
In this case assessee has sufficiently complied with the requirement of Rule 10D(i) of the Rules and moreover the AO has not raised any specific issue which specific documents is not produced under section 92D(3), hence, we conclude that the assessee has furnished all the informations as asked for by the AO and unless and until a specific defect is pointed out in the submissions of documents, penalty under section 271G of the Act cannot be levied. We delete the penalty and allow the appeal of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
These appeals by assessee are arising out of the common order of Commissioner of Income Tax (Appeals)-17, Mumbai in Appeal No. CIT(A)-17/ 10690, 10069, 10445/IT-385, 386, 387/2016-17, 2017-18, dated 24.12.2018. The Assessments were framed by the Dy. Commissioner of Income Tax- circle 10(3)(2), Mumbai (in short DCIT/ AO/TPO) for AYs 2013-14, 2014-15, 2014-15 vide dated 29.092017, 31.01.2017, 30.10.2018, under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only common issue in these three appeals of assessee is against the common order of CIT(A) confirming the levy of penalty by the AO under section 271G of the Act for the reason that the assessee has entered into an international transactions with its AE and has failed to furnish documents or informations as required under section 92D(3) of the Act. For this assessee has raised the identically worded grounds in all three years and facts and circumstances are also identical. Hence, we will take the facts from AY 2012-13 and will decide the issue. The assessee has raised the ground in AY 2012-13 in ITA No.1085/Mum/2019 as under: –
“1. General
On the facts and circumstances of the case, and in law, the order passed by Hon’ble Commissioner of Income-tax (appeals) (‘CIT(A)’] is a vitiated order, as the Hon’ble CIT(A) erred both on facts and in law in confirming the penalty under section 271G levied by the Ld. Transfer Pricing Officer (“TPO”) to the appellant’s income.
2. On the facts and in the circumstances of the case and in law, the Ld. TPO/ CIT(A) erred in not appreciating that:
a) There was no failure on the part of the Appellant keep and maintain any information required by sub-section (1) of section 92D of the Act r.w. Rule 10D of the Income-tax Rules, 1962 (‘the Rules’);
b) The appellant was not required to maintain the following information/documents called for under section 92D(3) of the Act:
-Information vis-à-vis the audited segmental account for AE and non-AEs transactions undertaken as the Appellant had select the foreign AE as the tested party in its TP study benchmarking analysis;
-Information vis-à-vis the audited segmental accounts for its manufacturing and distribution segment as it operated as an entrepreneur in the Indian market and therefore, does not have such segmental bifurcation.
c) Notice under section 92D(3) of the Act can be issued, only if after application of mind, the Ld. TPO requires more information for determination of the Arm’s Length price.
d) Notice under section 92D(3) of the Act cannot be vague or casualty issued, but must require furnishing of specific information or documents which the taxpayer failed to furnish under section 92CA(2) of the Act.
3. On the facts and circumstances of the case and in law, the Ld. TPO/ CIT(A) erred in not taking cognizance of section 92C(3), 92CA(2) and 92CA(3) of the Act, which requires:
a) the appellant to furnish evidence in support of its own determination of the arm’s length price wherein the same has been maintained by the Appellant in good faith in terms of above mentioned section;
and
b) The ld. TPO to determine arm’s length price on the basis of material available with him, if the Ld. TPO is of the opinion that the material maintained by the Appellant does not fulfil the requirement of law.
4. Without prejudice to the above, on the facts and circumstances of the case and in law, the ld. TPO erred in not taking cognizance of the fact that, in terms of section 273B of the Act, penalty under section 271G of the Act can be imposed only if default of the Appellant is held to be proved without reasonable cause.”
3. Brief facts of the case are that the assessee is in the business of first moving consumer goods in the business segment of health care and feminine care and licensed manufacturer in the Indian market, wherein the manufacturer also gets goods manufactured from its Associated Enterprises (AE) for sale in India. The petitioner operates in the business segment comprising of house hold care, beauty care, feminine care and other products in India, Nepal, Bhutan and other markets as agreed between the assessee and its AEs. The assessee filed its returned income for the AY 2012-13 declaring total income at nil and the return of income was selected for scrutiny by issuing notice under section 143(2) of the Act. During the transfer pricing proceedings, the transfer pricing officer (TPO) disregarded the contention of the assessee and made Transfer Pricing adjustment amounting to ₹ 476,28,58,044/- vide his order dated 29.01.2016 under section 92CA(3) of the Act. The quantum adjustments made by TPO are now pending before the Tribunal in consequent appeal. In the meantime, the TPO issued notice under section 271G initiating the penalty proceedings vide notice dated 25.05.2016 providing the assessee an opportunity to show-cause as to why the penalty should not be levied. The Transfer Pricing Officer levied the penalty under section 271G of the Act vide order dated 29.07.2016 and CIT(A) upheld the order of the Transfer Pricing Officer on the following grounds: –
“Non-furnishing of AE and non-AE audited segmental accounts:
Non-furnishing of manufacturing of distribution audited segmental accounts;
Non-furnishing of documents regarding choice of foreign entity as tested party; and
Non furnishing of documents regarding applicability of Transactional Net Margin Method (TNMM) as Most appropriate method (MAM)”
4. Before us, the learned Counsel for the assessee stated that the Transfer Pricing Officer has initiated the penalty proceedings on International Transactions of import of raw material, import of spare of finished goods, export of raw materials and export of finished goods. The only allegation of the Transfer Pricing Officer is that the assessee has not maintained a sufficient document as prescribed under Rule 10D of the Income Tax Rules, 1962 (hereinafter the ‘Rules’). It means that the short dispute before us is regarding levy of penalty under section 271G of the Act is for non-maintenance of audited segmental financial vis-à-vis the transactions of the associated enterprise and non-associate enterprise. The learned Counsel stated that the assessee has maintained following information as per Rule 10D, which has been submitted before the Transfer Pricing Officer and its transfer pricing study as under: –
“Analysis of the functions performed, risks assumed and assets employed by the petitioner;
Analysis of comparing the price of international transactions under consideration with comparable third party transactions;
Analysis of the industry in which the petitioner operates;
Selection of the most appropriate method and an analysis to conclude that the other methods are not appropriate.”
5. The Counsel also stated that the following information/documents were provided: –
